The ‘must-know’ facts to avoid debt problems

Sinking feeling but, according to money expert Martin Lewis, debt doesnt have to be a bad thing...as long as it is managed properly

Martin Lewis

05:15Sunday 16 February 2014

Debt is like fire - used well, it’s a fantastic tool, used badly, it burns. That’s why of all elements of finance, it’s the one that needs the most careful handling. Yet for those in the know, it’s possible to borrow without any cost whatsoever.

Can you save up instead or use existing savings? Some will yell “neither a borrower nor a lender be”, but life isn’t clear-cut.

Some people make planned purchases, for example, they’ve got a new job far from public transport, so need a loan for a car.

Provided the loan and interest are minimised, and the repayments budgeted, it can be an enabling choice. Yet if you borrow willy-nilly to fill shortfalls in your monthly income, that’s usually a nightmare.

2. 18 months’ interest-free borrowing

If you’ve a big purchase that can be paid by credit card, and can repay within 18 months, you can borrow totally interest-free with a 0 per cent deal.

Only do this if you’re sure you can fully clear before the 0 per cent ends and make the minimum repayment each month (or you lose the 0 per cent deal)

The market’s longest deals are for new cardholders at Tescobank.com and Santander.co.uk at 18 months 0 per cent (18.9 per cent rep APR after), though Tesco’s advantage is it also gives reward points. If you need longer, MBNA has a card that’s 6.9 per cent until repaid on all purchases within 90 days (after that, they’re 16.9 per cent rep APR).

The real key’s whether you’ll be accepted. The way to find out is to apply, but that leaves a mark on your credit file. So use my Eligibility Checker at www.mse.me/eligibility, which shows cards are most likely to accept you.

3. Cheapest loans 4.5 per cent APR

If you can’t pay on a credit card, need longer, need more or prefer the disciplined structure of fixed repayments, then the straightforward option’s a personal loan.

Rates change daily – the best at time of writing are below. Updated list at www.mse.me/loans.

• Loans £5k-£7.5k: www.sainsburysbank.co.uk is 5.7 per cent rep APR. • Loans £3k-£5k: www.sainsburysbank.co.uk is 12.4 per cent rep APR • Under £3k: There are no cheap loans – see points four and five below.

Remember, these ‘representative APR’ loans mean only 51 per cent of accepted applicants must get the advertised rate. Others can pay more.

4. 29-month 0 per cent ‘loan’ for a 4 per cent fee

Buying something you can pay for on a card, or want a cheaper loan for smaller amounts?

A few specialist credit cards allow accepted new customers cheap ‘money transfers’. This means the card pays money directly to your bank account (that you can spend), so you owe it instead. Mbna.co.uk is 29 months 0 per cent for a 4 per cent fee and www.Fluid.co.uk is 28 months with 4 per cent fee. More help at www.mse.me/moneytransfers.

Always pay at least the minimum monthly repayment and schedule repayments to clear the card by the time the 0 per cent ends, or you’ll pay a big 22.9 per cent rep APR.

5. Peer-to-peer loans

Try to repay most loans early and you’re charged penalties, but there’s a penalty-free alternative.

Peer-to-peer lending sites match people who want to borrow with those who have cash to lend.

The rate you get depends on your credit score, but unlike normal loans, you can check without it marking your file.

The two biggies are www.zopa.com and www.ratesetter.com, which can be about 9 per cent APR on £2,500 for good credit scorers compared to cheapest standard loans at 14.9 per cent rep APR. Full help at www.mse.me/peertopeer.

6. Length counts

Many people focus just on the interest rate. If you borrow longer, the interest is added year after year.

So the shorter you borrow for, the better.

Those who shift credit card debts onto their mortgage should consider this – 18% repaid over three years is cheaper than 5 per cent repaid over 20.

7. In hardship? Are you eligible for a Government 0 per cent loan?

If you’re desperate, these interest-free loans are far better than payday loans. There’s no credit check, though they will check you can repay.

• Local council support schemes: Previously called ‘crisis loans’, these are administered locally, so sadly whether you can get one is a postcode lottery. They’re for those with no savings in emergencies.

• Budgeting loans: If you’re on some income-based benefits, you could be eligible for a loan of up to £1,500 to help you meet essential living costs. Apply online at Gov.uk/budgeting-loans or via local Jobcentres.

8. Try local credit unions

If you’re looking for smaller loans, check if there’s a credit union near you.

These are small savings and loans mutuals, helping local communities.

They usually lend from £50 to £3,000, with APRs usually about 13 per cent, but can be higher. Locate ones near you at www.findyourcreditunion.co.uk.

9.Set up a direct debit to protect your credit score

Forget or make late repayments and you risk a fine, losing your 0% deal, and a black mark on your file. An easy tip’s to set up a direct debit to cover at least the monthly minimum, then pay more on top manually.

10.Debt to avoid While I’m never gung-ho about borrowing, some debt is better than others. Particularly dangerous types include high cost credit (including payday loans). With APRs up to 6,000%, these are the loans to avoid. Store cards are the devil’s debt. These are credit cards locked to one store, but with higher 25%+ APRs. If there’s a decent discount, use it, but pay it off IN FULL each month.

This website and its associated newspaper adheres to the Independent Press Standards Organisation's Editors' Code of Practice.
If you have a complaint about editorial content which relates to inaccuracy or intrusion, then contact the
Editor by clicking here.

If you remain dissatisfied with the response provided then you can contact the IPSO by
clicking here.

Lytham St Annes Express provides news, events and sport features from the Lytham area. For the best up to date information relating to Lytham and the surrounding areas visit us at Lytham St Annes Express regularly or bookmark this page.

For you to enjoy all the features of this website Lytham St Annes Express requires permission to use cookies.

Find Out More ▼

What is a Cookie?

What is a Flash Cookie?

Can I opt out of receiving Cookies?

About our Cookies

Cookies are small data files which are sent to your browser (Internet Explorer, Firefox, Chrome etc) from a website you visit. They are stored on your electronic device.

This is a type of cookie which is collected by Adobe Flash media player (it is also called a Local Shared Object) - a piece of software you may already have on your electronic device to help you watch online videos and listen to podcasts.

Yes there are a number of options available, you can set your browser either to reject all cookies, to allow only "trusted" sites to set them, or to only accept them from the site you are currently on.

However, please note - if you block/delete all cookies, some features of our websites, such as remembering your login details, or the site branding for your local newspaper may not function as a result.

The types of cookies we, our ad network and technology partners use are listed below:

Revenue Science ►

A tool used by some of our advertisers to target adverts to you based on pages you have visited in the past. To opt out of this type of targeting you can visit the 'Your Online Choices' website by clicking here.

Google Ads ►

Our sites contain advertising from Google; these use cookies to ensure you get adverts relevant to you. You can tailor the type of ads you receive by visiting here or to opt out of this type of targeting you can visit the 'Your Online Choices' website by clicking here.

Digital Analytics ►

This is used to help us identify unique visitors to our websites. This data is anonymous and we cannot use this to uniquely identify individuals and their usage of the sites.

Dart for Publishers ►

This comes from our ad serving technology and is used to track how many times you have seen a particular ad on our sites, so that you don't just see one advert but an even spread. This information is not used by us for any other type of audience recording or monitoring.

ComScore ►

ComScore monitor and externally verify our site traffic data for use within the advertising industry. Any data collected is anonymous statistical data and cannot be traced back to an individual.

Local Targeting ►

Our Classified websites (Photos, Motors, Jobs and Property Today) use cookies to ensure you get the correct local newspaper branding and content when you visit them. These cookies store no personally identifiable information.

Grapeshot ►

We use Grapeshot as a contextual targeting technology, allowing us to create custom groups of stories outside out of our usual site navigation. Grapeshot stores the categories of story you have been exposed to. Their privacy policy and opt out option can be accessed here.

Subscriptions Online ►

Our partner for Newspaper subscriptions online stores data from the forms you complete in these to increase the usability of the site and enhance user experience.

Add This ►

Add This provides the social networking widget found in many of our pages. This widget gives you the tools to bookmark our websites, blog, share, tweet and email our content to a friend.